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Spotlight On Mortgages: October 18, 2013

The effects of last summer’s mortgage affordability restrictions appear to be reversing. The latest CREA numbers show housing demand has recovered by 18 per cent from last September’s lagging numbers, and is up just over one per cent from August.

Keep in perspective that while this growth looks huge, it’s because last year’s market was dogged by much softer than usual demand as the OSFI-imposed amortization changes knocked buyers out of the market. Current prices also reflect this sub-par buying time – national prices are up 8.8 per cent year over year, but are skewed by recovery in urban centres like Vancouver, which saw a notable price slide when the changes were introduced, according to CREA Chief Economist Gregory Klump.

“Year-over-year increases in the sales over the past couple of months highlights how activity softened across much of the country following the introduction of tighter mortgage rules last summer,” he stated.

In Toronto, housing demand is still scorching, with TREB reporting a 21 per cent increase in sales – 13 per cent higher than the 10-year average. Buyers are still clamouring for ground-related housing, driving prices up 7.3 per cent to an average of $536,301. According to TREB President Dianne Usher, these numbers would have been even higher, had there been enough detached homes to go around on the market.

The CREA numbers also show that if Toronto, Vancouver and Calgary are taken out of the equation completely, national price growth is 4.3 per cent, year over year.

Proof Beyond Preapprovals?

While the real estate numbers are strong, mortgage experts are waiting for the other shoe to drop; is demand mainly being driven by expiring pre-approved rates for mortgages? Those who managed to lock into rate holds at this summer’s record-low discounts may be spurred to act as those 120-day terms come to an end. The question is whether today’s slightly higher rate environment will prove to deter buyers late in the year, causing demand and sales to moderate.

The Shutdown Is Over – But Consequences Remain

Earlier this month, fixed rates lowered slightly as investors, uneasy about the newly shut down U.S. government, stuck close to bonds, lowering yields. This confidence in treasuries has held steady throughout the month, even as time ticked closer to a U.S. debt default – after all, no one really believed that policy makers would allow such a catastrophic economic event to take place.

However, now that the dust has settled on the shutdown and a new January deadline looms, has the damage been done to investor confidence? Already, the economic impact has been steep; the shutdown has already cost a $2.4-billion loss for the U.S. economy, angered the U.S.’s largest investors, and is predicted to stall growth. The International Monetary Fund has forecast 2.6 per cent growth for our American neighbours in 2014, and 2.2 per cent for Canada. However, all are waiting with baited breath for Round Two come January 15 – and if the U.S. Senate can indeed break their habit of “governing by crisis” as President Obama so eloquently put it.

Week In Review

Rates have held fairly steady this week, with no change to the best discounted one-and-10-year fixed rates. Five-year fixed rates have dropped by on basis point, while five-year variable rates are back to the standard 2.40 per cent, from the discounted 2.35 per cent we saw last week.